Samsara Inc. (IOT) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in “Part I, Item 1A. Risk Factors” or included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition, or results of operations. See the section titled “Special Note Regarding Forward-Looking Statements” in this report. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2022 and 2021 items and year-to-year comparisons between fiscal years 2022 and 2021 in accordance with accounting principles generally accepted in the United States of America (“GAAP”). For a discussion of our consolidated statement of operations data for the fiscal year ended February 1, 2020, see “Comparison of the Fiscal Years Ended February 1, 2020 and January 30, 2021” under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our final prospectus dated December 14, 2021 and filed with the SEC pursuant to Rule 424(b) under the Securities Act on December 15, 2021 (the “Final Prospectus”). For a discussion of our liquidity and capital resources for the fiscal year ended February 1, 2020, see “Liquidity and Capital Resources” under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Final Prospectus.

Overview

Samsara is on a mission to increase the safety, efficiency and sustainability of the operations that power the global economy.

To realize this vision, we pioneered the Connected Operations Cloud, which allows businesses that depend on physical operations to harness IoT data to develop actionable business insights and improve their operations.

Our Connected Operations Cloud consolidates data from our IoT devices and a growing ecosystem of connected assets and third-party systems, and makes it easy for organizations to access, analyze and act on data insights, using our cloud dashboard, custom alerts and reports, mobile apps and workflows. Our differentiated, purpose-built suite of solutions enables organizations to embrace and deploy a digital, cloud-connected strategy across their operations. With Samsara, customers have the ability to drive safer operations, increase business efficiency, and achieve their sustainability goals, all to improve the lives of their employees and the customers they serve.

We were founded in 2015 and have achieved significant growth since our inception. For our fiscal years ended January 29, 2022 and January 30, 2021, our revenue was $428.3 million and $249.9 million, respectively, representing year-over-year growth of 71%. Our net loss was $355.0 million and $210.2 million for the fiscal years ended January 29, 2022 and January 30, 2021, respectively. Our business model focuses on maximizing the lifetime value of our customer relationships and we continue to make significant investments in order to grow our customer base. We estimate that for the last three fiscal years, the calculated lifetime value of our customers has exceeded eight times the associated cost of acquiring them.

Our Business Model

In each of the past three fiscal years, we generated approximately 98% of our revenue from subscriptions to our Connected Operations Cloud, which today includes Applications for video-based safety, vehicle telematics, apps and driver workflows, equipment monitoring, and site visibility. A subscription to our Connected Operations Cloud includes IoT data collection, which usually comes from a Samsara IoT device, such as an Internet gateway, camera or sensor, or at times from a third-party solution; cellular connectivity for our IoT devices; access to our cloud Applications, APIs and the Samsara App Marketplace; customer support; and warranty coverage. We price our subscriptions on a per asset, per application basis. For example, one vehicle using two Applications (video-based safety and vehicle telematics) would count as two subscriptions. A five-building site with each building having one piece of equipment and using two Applications (equipment monitoring and site visibility) would count as ten subscriptions.

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Our Connected Operations Cloud is designed to be a digital hub for our customers and a mission-critical part of their operations. Our criticality and integration into existing infrastructure is demonstrated by long contract lengths, which typically span three to five years. We recognize revenue from our subscriptions ratably over the term of the contract. We bill monthly, quarterly, annually, or in advance, depending on the specifics of each contract. The timing of large multi-year contracts can create some variability in billings between periods, though the impact to our annual or quarterly revenue is minimal due to the fact that we recognize revenue ratably over the term of our customer contracts.

Our go-to-market strategy is focused on landing new customers and expanding their adoption of our Connected Operations Cloud. We primarily sell through a direct sales force, which focuses on landing and expanding large and mid-market customers with numerous physical assets. We also sell through resellers, which expands our reach and allows us to access certain customer segments more efficiently. Additionally, we offer self-service and low-touch inbound sales to attract a broad range of small customers onto our platform.

Our Customers

As of January 29, 2022, we had more than 14,000 customers representing over $5,000 in annual recurring revenue (“ARR”), or Core Customers, and approximately 93% of our ARR came from Core Customers, in part due to our increasing focus on this customer set. Our customer counts fluctuate from period to period, including due to customer mergers, acquisitions, consolidations, spin-offs, and other market activity. We have a very diverse customer base and no significant customer concentration, with no single customer accounting for more than 2% of our ARR for the fiscal year ended January 29, 2022. Additionally, we have a growing international presence, with approximately 10% of our ARR generated from outside of the United States for the fiscal year ended January 29, 2022. Our international revenue is generally billed in local currencies.

Our solution is used by businesses of varying sizes across a broad range of industries that depend on physical operations, including: transportation, wholesale and retail trade, construction, field services, logistics, utilities and energy, government, healthcare and education, manufacturing, food and beverage, and others. Our industry-agnostic approach and the horizontal applicability of our solution have enabled us to deploy our platform to a diverse set of industries, illustrated by the chart below, which depicts the percentage of ARR by industry as of January 29, 20222:

2 Listed industry data is available for Samsara customers comprising ~80% of ARR. Our analysis assumes that the remaining customers track the same breakdown by industry as the customers for which data is available.

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We have extended our Applications over time to address the needs of our customers. We started with Applications for connected fleets, where we observed a large and underpenetrated market opportunity, and then expanded into connected equipment and connected sites, where we observed similar opportunities to improve operations around physical assets. As of January 29, 2022, over 70% of our Core Customers and 90% of our customers representing over $100,000 in ARR are using multiple Applications. Two of our Applications, Video-based Safety and Vehicle Telematics, each represented more than $200 million of ARR as of January 29, 2022, demonstrating the flexibility of our solution and our ability to develop and grow new Applications.

Our key focus is multi-application adoption. Customers may land with large-scale, multi-application contracts, or land with one application within one division and expand their adoption over time. Regardless of how our customers land, we focus on expanding their usage of Connected Operations Cloud and encourage full-scale rollouts across their geographies and divisions. We measure expansion within our existing customer base by dollar-based net retention rate, which was over 115% as of January 29, 2022.

We calculate our dollar-based net retention rate as of a period end by starting with the ARR from the specified cohort of customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion, and is net of contraction or attrition over the last 12 months, but excludes ARR from new customers in the current period, as well as any ARR associated with paid trials. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate. We then calculate the weighted average of the trailing 12-month point-in-time dollar-based net retention rates, to arrive at the dollar-based net retention rate. We calculate our dollar-based net retention rate for all customers and for customers representing over $100,000 in ARR by identifying cohorts of customers with a Prior Period ARR greater than $0 who have exceeded $1,000 in ARR (in the case of customers) or $100,000 in ARR (in the case of customers representing over $100,000 in ARR) for any period during their lifetime as Samsara subscribers. Our dollar-based net retention rate fluctuates from period to period, including due to customer mergers, acquisitions, consolidations, spin-offs, and other market activity.

While our Connected Operations Cloud is accessible to customers of all sizes and we have achieved rapid adoption over time, we are particularly focused on larger customers representing over $100,000 in ARR. Customers representing over $100,000 in ARR generally contribute higher revenue, land with multiple products, have higher retention rates, and demonstrate stronger unit economics. The number of our customers representing over $100,000 in ARR has increased over time from 452 as of January 30, 2021 to 806 customers as of January 29, 2022. Customers representing over $100,000 in ARR generally adopt more Applications than our overall customer base. For example, as of January 29, 2022, 90% of these customers use two or more Applications and approximately 50% use three or more Applications. As of January 29, 2022, the dollar-based net retention rate for customers representing over $100,000 in ARR was over 125%, and approximately 45% of our ARR came from customers representing over $100,000 in ARR.

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Key Business Metrics

ARR

We believe that ARR is a key indicator of the trajectory of our business performance, enables measurement of the progress of our business initiatives, and serves as an indicator of future growth. We define ARR as the annualized value of subscription contracts that have commenced revenue recognition as of the measurement date. ARR highlights trends that may be less visible from the face of our financial statements due to ratable revenue recognition. ARR does not have a standardized meaning and is not necessarily comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and is not intended to be combined with or to replace it. ARR is not a forecast and the active contracts at the date used in calculating ARR may or may not be extended or renewed. Our ARR has grown in each of the past three fiscal years, reflecting growth in new customers as well as expanded sales to existing customers.

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Number of Customers Over $100,000 in ARR

We focus on customers representing over $100,000 in ARR, as this key business metric is indicative of our penetration within larger customers. The number of our customers over $100,000 in ARR has grown over time as we have focused our sales efforts on larger customers, invested in our partner ecosystem and released more Applications to address the needs of our larger customers.

Factors Affecting Our Performance

Acquiring New Customers

We believe that we have a substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness, and drive adoption of our Connected Operations Cloud. Our ability to attract new customers depends on a number of factors, including the effectiveness of our sales and marketing efforts, as well as the success of our efforts to expand internationally.

Expanding Within Our Existing Customer Base

We believe that there is a significant opportunity to expand sales to existing customers following a customer’s initial adoption of our Connected Operations Cloud. We expand within our customer base by selling more Applications and expanding existing Applications across geographies and divisions. Our ability to expand within our customer base will depend on a number of factors, including our customers’ satisfaction, pricing, competition, and changes in our customers’ spending levels.

We focus on maximizing the lifetime value of our customer relationships, and we continue to make significant investments in order to grow our customer base. Due to our subscription model, we recognize subscription revenue ratably over the term of the subscription period. As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber to our Connected Operations Cloud. In general, the associated upfront costs with respect to new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year. We believe that, over time, as our customer base grows and a relatively higher percentage of our subscription revenues are attributable to renewals versus new customers or upsells to existing customers, associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease, subject to investments we plan to make in our business. Over the lifetime of the customer relationship, we also incur sales and marketing costs to manage the account, renew or upsell the customer to more subscriptions. However, in general, these costs are significantly less than the costs initially incurred to acquire the customer.

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We calculate the lifetime value, or LTV, of our customer relationships as of a measurement date by dividing (i) the product of our adjusted gross margin for the trailing twelve months, which excludes stock-based compensation expense, compensation resulting from tender offers, and restructuring and related charges, and the difference between our Current Period ARR and Prior Period ARR by (ii) the weighted average of the percentage of our ARR that did not renew in each quarter over the trailing four quarters. We calculate our customer acquisition costs, or CAC, as our adjusted sales and marketing expense, which excludes stock-based compensation expense, compensation resulting from tender offers, and restructuring and related charges. We estimate that for each of the last three fiscal years, our LTV:CAC ratio was at least 8x, which we believe is indicative of the state of our business and unit economics for the foreseeable future.

Investments in Innovation and Future Growth

Our performance is driven by continuous innovation on our Connected Operations Cloud and our ability to scale our headcount to grow our business. We continuously invest to add new data types to our Connected Operations Cloud and innovate with this growing data asset to introduce new Applications over time. Our performance is also impacted by our ability to scale our headcount across our business to support our growth. We have increased our headcount from 1,249 employees as of the last business day of the fiscal year ended January 30, 2021 to 1,616 employees as of the last business day of the fiscal year ended January 29, 2022. We remain committed to investing in our sales capacity and our research and development organization, and to driving revenue growth globally.

COVID-19 Pandemic

In December 2019, a disease stemming from a novel coronavirus (COVID-19) was reported in China, and in March 2020, the World Health Organization declared it a global pandemic. The COVID-19 pandemic is impacting worldwide economic activity and financial markets and significantly increasing economic volatility and uncertainty. For instance, several local, state, and federal governments in the U.S. and globally have been prompted to take unprecedented steps including, but not limited to, travel restrictions, closure of businesses, social distancing requirements, and quarantines. The COVID-19 pandemic has created economic uncertainty, including disruptions of the supply chain globally and labor shortages, which may adversely impact us directly or indirectly as a result of the effects on our customers and vendors.

We have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate. These measures previously included a suspension of all non-essential travel and the temporary closure of all of our major offices to non-essential employees. Additionally, in an effort to reduce our expenses to ensure that we could continue to operate in a sustainable manner should the pandemic have caused a prolonged economic downturn, we reduced our workforce in the second quarter of the fiscal year ended January 30, 2021. As a result of these actions, we recognized $6.8 million of restructuring and related charges for the fiscal year ended January 30, 2021. Since that time, we have resumed our hiring efforts, with a near-term goal of growing our employee base beyond our pre-pandemic size. As of the last business day of the fiscal year ended January 29, 2022, we employed 1,616 total employees, representing nearly 30% growth year-over-year.

While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the conditions caused by this pandemic may affect the rate of global information technology spending and could adversely affect our business during future periods by lengthening our sales cycles, reducing customer spending, negatively impacting collections of accounts receivable, causing some of our customers to go out of business, and limiting the ability of our direct sales force to travel to existing and potential customers’ sites.

Refer to the section titled “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

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Components of Results of Operations

Revenue

We provide access to our Connected Operations Cloud through subscription arrangements, whereby the customer is charged a per-subscription fee for access for a specified term. Subscription agreements contain multiple service elements for one or more of our cloud-based Applications via mobile app(s) or a website that enable data collection and provide access to the cellular network, IoT devices (which we also refer to as connected devices) and support services delivered over the term of the arrangement. Our subscription contracts are typically for a three-to-five-year term and are generally non-cancelable and non-refundable. Our Connected Operations Cloud and IoT devices are highly interdependent and interrelated, and represent a combined performance obligation within the context of the contract.

In each of the past three fiscal years, we generated approximately 98% of our revenue from subscriptions to our Connected Operations Cloud. The small remaining portion of our revenue not generated from subscriptions to our Connected Operations Cloud comes from the sale of replacement IoT devices, including gateways, sensors and cameras, as well as related shipping and handling fees, and professional services.

Cost of Revenue

Cost of revenue consists primarily of the amortization of IoT device costs associated with subscription agreements, cellular-related costs, third-party cloud infrastructure expenses, customer support costs, warranty charges, and operational costs consisting of employee-related costs, including salaries, employee benefits and stock-based compensation, amortization of internal-use software development costs, expenses related to shipping and handling, packaging, fulfillment, warehousing, write-downs of excess and obsolete inventory, and allocated overhead costs.

As our customers expand and increase the use of our Connected Operations Cloud driven by increased IoT devices and additional Applications, we expect that our cost of revenue will increase on an absolute basis due to higher IoT device, cellular-related, and cloud hosting costs. While we expect our cost of revenue to decrease as a percentage of our revenue over the long term, our cost of revenue expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. We intend to continue to invest additional resources in our Connected Operations Cloud and customer support and operations personnel as we grow our business. The level and timing of investment in these areas will affect our cost of revenue in the future.

Overhead costs that are not substantially dedicated to use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, and other expenses, such as corporate software and subscription services, insurance, and commuter benefits.

Operating Expenses

Research and Development

Research and development costs consist primarily of employee-related costs, including salaries, employee benefits and stock-based compensation, depreciation and other expenses related to prototyping IoT devices, product initiatives, software subscriptions, hosting used in research and development, and allocated overhead costs. We continue to focus our research and development efforts on adding new features and products and enhancing the utility of our Connected Operations Cloud. We capitalize the portion of our internal-use software development costs that meets the criteria for capitalization.

We expect our research and development expenses to increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance our Connected Operations Cloud. While we expect our research and development expenses to decrease as a percentage of our revenue over the long term, our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Sales and Marketing

Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing activities, including salaries, employee benefits and stock-based compensation, and sales commissions. Sales and marketing expenses also include expenditures related to advertising, media, marketing, promotional costs, free trial expenses, brand awareness activities, business development, corporate partnerships and allocated overhead costs.

We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. While we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

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General and Administrative

General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, IT, and facilities personnel, including salaries, employee benefits and stock-based compensation, professional fees for external legal, accounting, recruiting and other consulting services, bad debt, allocated overhead costs and unallocated lease costs associated with unused office facilities.

We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support our growth as well as due to additional costs associated with legal, accounting, compliance, insurance, investor relations, and other costs as we become a public company. While we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term, our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges consist of impairment charges related to the sublease and abandonment of facilities, as well as the derecognition of operating lease liabilities and right-of-use (“ROU”) assets in connection with a lease modification and related accelerated depreciation expense.

We may incur additional lease modification, impairment, and related charges in subsequent periods.

Restructuring and Related Charges

Restructuring and related charges consist of severance and related termination costs for employees under our May 2020 workforce reduction plan, including salaries and other compensation payments to the employees during their post-notification retention period, as well as associated outplacement services. Our May 2020 workforce reduction plan was completed in the second fiscal quarter of 2021, and we do not expect further restructuring and related charges related to this workforce reduction plan in subsequent periods.

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net consists primarily of income earned on our money market funds included in cash and cash equivalents and restricted cash, as well as foreign currency remeasurement gains and losses and foreign currency transaction gains and losses. As we have expanded our global operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

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Results of Operations

The following table sets forth our consolidated statements of operations data for the periods indicated (in thousands):

__________

(1)Includes stock-based compensation expense as follows (in thousands):

The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:

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Comparison of the Fiscal Years Ended January 29, 2022 and January 30, 2021

Revenue

Our total revenue is summarized as follows (in thousands, except percentages):

Revenue increased by $178.4 million, or 71%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily due to an increase in customer count and increased purchases by existing customers of our subscription offerings.

Cost of Revenue, Gross Profit, and Gross Margin

Our cost of revenue, gross profit, and gross margin are summarized as follows (in thousands, except percentages):

Cost of revenue increased by $49.1 million, or 65%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily due to increased product costs of $37.1 million, which were mainly due to $18.6 million of increased amortization of deferred IoT device costs, $13.9 million of increased direct labor and selling costs, of which $6.0 million was an increase in stock-based compensation expense primarily attributable to the vesting of RSUs upon satisfaction of the performance condition in connection with our IPO in December 2021, and $4.7 million of increased cloud hosting costs. The increase in cost of revenue was also driven by increased operational costs of $11.8 million to support the growth of our subscription offerings.

Our gross margin increased for the fiscal year ended January 29, 2022 compared to the prior fiscal year mainly due to efficiencies resulting from product optimizations, improved commercial strategies, and economies of scale achieved as a result of revenue growth.

Research and Development

Research and development expense is summarized as follows (in thousands, except percentages):

Research and development expense increased by $105.4 million, or 106%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily due to a $100.7 million increase in employee-related costs, which included a $84.5 million increase in stock-based compensation expense primarily attributable to the vesting of RSUs upon satisfaction of the performance condition in connection with our IPO in December 2021 and a $16.2 million increase in salaries and benefits driven by average headcount growth. Our increase in research and development expense was also driven by a $4.4 million increase in expense associated with product initiatives.

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Sales and Marketing

Sales and marketing expense is summarized as follows (in thousands, except percentages):

Sales and marketing expense increased by $88.9 million, or 44%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily due to a $84.3 million increase in employee-related costs, which included a $52.5 million increase in stock-based compensation expense primarily attributable to the vesting of RSUs upon satisfaction of the performance condition in connection with our IPO in December 2021, a $19.9 million increase in salaries and benefits primarily due to the timing of hiring to support our sales organization, and a $11.9 million increase in sales commissions. Our increase in sales and marketing expense was also driven by a $5.1 million increase in expenses relating to lead generation.

General and Administrative

General and administrative expense is summarized as follows (in thousands, except percentages):

General and administrative expense increased by $84.6 million, or 112%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily due to a $77.9 million increase in employee-related costs, which included a $60.1 million increase in stock-based compensation expense primarily attributable to the vesting of RSUs upon satisfaction of the performance condition in connection with our IPO in December 2021 and a $17.8 million increase in salaries and benefits driven by an increase in average headcount to support the growth of our finance, accounting, human resources, IT, and legal functions in advance of our public offering. Our increase in general and administrative expense was also driven by a $5.1 million increase in expenses relating to outside services primarily related to external recruiting, accounting and other professional services fees to support our growth and public offering activities.

Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges are summarized as follows (in thousands, except percentages):

__________

*Not meaningful

Lease modification, impairment, and related charges increased by $1.5 million for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021.

In the third fiscal quarter of 2022, we determined that we no longer had the right to control the use of a certain office location and accordingly accounted for a lease modification for such facility, and also impaired and ceased using other leased office spaces. As a result of our leasing activities, we recognized $1.5 million in lease modification, impairment, and related charges for the fiscal year ended January 29, 2022. See Note 5, “Leases,” to our consolidated financial statements for further information. We did not incur any lease modification, impairment, and related charges in the fiscal year ended January 30, 2021.

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Restructuring and Related Charges

Restructuring and related charges are summarized as follows (in thousands, except percentages):

Restructuring and related charges decreased by $6.8 million for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021 as we did not incur any restructuring and related charges in the fiscal year ended January 29, 2022.

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net, are summarized as follows (in thousands, except percentages):

Interest income and other income (expense), net, decreased by $0.6 million, or 100%, for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021. The decrease was primarily due to lower foreign currency remeasurement losses on our United Kingdom operating lease liabilities.

Provision for Income Taxes

Provision for income taxes is summarized as follows (in thousands, except percentages):

__________

*Not meaningful

The provision for income taxes increased by $1.1 million for the fiscal year ended January 29, 2022 compared to the fiscal year ended January 30, 2021, primarily driven by our international operations.

Non-GAAP Financial Measures

We review the following non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions (in thousands, except percentages):

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Limitations and Reconciliations of Non-GAAP Financial Measures

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. In addition, adjusted free cash flow does not reflect our future contractual commitments or the total increase or decrease of our cash balance for a given period. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and to not rely on any single financial measure to evaluate our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit as gross profit plus stock-based compensation expense-related charges, including employer taxes on employee equity transactions, included in cost of revenue. Non-GAAP gross margin is defined as non-GAAP gross profit as a percentage of total revenue. We use non-GAAP gross profit and non-GAAP gross margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP gross profit to our GAAP gross profit for the periods presented (in thousands, except percentages):

__________

(1)Stock-based compensation expense-related charges included approximately $0.3 million of employer taxes on employee equity transactions for the fiscal year ended January 29, 2022.

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Non-GAAP Loss from Operations and Non-GAAP Operating Margin

We define non-GAAP loss from operations, or non-GAAP operating loss, as loss from operations plus stock-based compensation expense-related charges, including employer taxes on employee equity transactions, compensation expense resulting from tender offers, lease modification, impairment, and related charges, and restructuring and related charges. Non-GAAP operating margin is defined as non-GAAP operating loss as a percentage of total revenue. We use non-GAAP loss from operations and non-GAAP operating margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP loss from operations and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP loss from operations to our GAAP loss from operations for the periods presented (in thousands, except percentages):

__________

(1)Stock-based compensation expense-related charges included approximately $9.5 million of employer taxes on employee equity transactions for the fiscal year ended January 29, 2022.

(2)Compensation expense in connection with 2019 tender offer was included in the following line items of our consolidated statements of operations and comprehensive loss as follows (in thousands):

Non-GAAP Net Loss

We define non-GAAP net loss as net loss excluding stock-based compensation expense-related charges, including employer taxes on employee equity transactions, compensation expense resulting from tender offers, lease modification, impairment, and related charges, and restructuring and related charges. We use non-GAAP net loss in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP net loss provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP net loss to our GAAP net loss for the periods presented (in thousands, except percentages):

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Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin

We define adjusted free cash flow as net cash used in operating activities less cash used for purchases of property and equipment, plus non-recurring capital expenditures associated with the build-out of our corporate office facilities in San Francisco, which we expect to be completed in fiscal year 2023, net of tenant allowances. Adjusted free cash flow margin is calculated as adjusted free cash flow as a percentage of total revenue. We believe that adjusted free cash flow and adjusted free cash flow margin, even if negative, are useful in evaluating liquidity and provide information to management and investors about our ability to fund future operating needs and strategic initiatives. The following table presents a reconciliation of adjusted free cash flow to net cash used in operating activities for the periods presented (in thousands, except percentages):

Liquidity and Capital Resources

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

Since our founding, we have financed our operations primarily through the sale of equity securities and payments received from our customers. In December 2021, we completed our IPO, which resulted in aggregate net proceeds of $846.7 million, including proceeds from the underwriters’ exercise of their option to purchase additional shares of our Class A common stock in January 2022 and net of underwriting discounts and commissions. We have generated significant operating losses from our operations, as reflected in our accumulated deficit of $921.0 million as of January 29, 2022. We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the investments we intend to make in our business, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business. We believe that our existing cash and cash equivalents will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

As of January 29, 2022, our principal sources of liquidity were cash and cash equivalents of $921.2 million. Cash and cash equivalents consisted of cash on deposit with banks as well as highly liquid investments with an original maturity of three months or less, when purchased.

Our future capital requirements will depend on many factors, including, but not limited to, our growth, our ability to attract and retain customers, the continued market acceptance of our solution, the timing and extent of spending to support our efforts to develop our Connected Operations Cloud, and the expansion of sales and marketing activities. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.

Cash Flows

The following table shows a summary of our cash flows for the periods presented (in thousands):

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Operating Activities

Our largest source of operating cash is payments received from our customers. Our primary uses of cash from operating activities are for employee-related expenses, sales and marketing expenses, connected device costs, third-party cloud and cellular infrastructure expenses, and overhead expenses. We have generated negative cash flows from operations in each of the past three fiscal years, and have supplemented working capital through net proceeds from the sale of equity securities.

Cash used in operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation, non-cash operating lease costs, depreciation and amortization of property and equipment, and changes in operating assets and liabilities during each period.

Cash used in operating activities was $171.5 million for the fiscal year ended January 29, 2022. This consisted of a net loss of $355.0 million, adjusted for non-cash charges of $247.3 million, and changes in our operating assets and liabilities of $63.7 million. The non-cash charges were primarily comprised of stock-based compensation expense of $228.7 million, depreciation and amortization of $10.4 million, bad debt expense of $7.4 million, and lease modification, impairment, and related charges of $1.5 million.

Cash used in operating activities was $171.8 million for the fiscal year ended January 30, 2021. This consisted of a net loss of $210.2 million, adjusted for non-cash charges of $53.1 million, and changes in our operating assets and liabilities of $14.6 million. The non-cash charges were primarily comprised of stock-based compensation expense of $25.6 million, depreciation and amortization of $10.7 million, operating lease-costs of $6.4 million, and bad debt expense of $9.4 million.

Investing Activities

Cash used in investing activities was $20.0 million for the fiscal year ended January 29, 2022, which primarily consisted of capital expenditures for additional office facilities.

Cash used in investing activities was $32.2 million for the fiscal year ended January 30, 2021, which primarily consisted of capital expenditures for additional office facilities.

Financing Activities

Cash provided by financing activities was $701.6 million for the fiscal year ended January 29, 2022, which primarily consisted of $846.7 million of net proceeds from the IPO and $1.4 million of net proceeds from exercises of stock options, partially offset by $141.7 million of tax payments related to the net share settlement of equity awards and $4.1 million in payments of offering costs.

Cash provided by financing activities was $402.0 million for the fiscal year ended January 30, 2021, which primarily consisted of $399.8 million of net proceeds from the issuance of convertible preferred stock and $2.4 million of proceeds from exercises of stock options.

Contractual Obligations and Commitments

Our estimated future obligations consist of leases and non-cancelable purchase commitments as of January 29, 2022. For additional discussion on our leases and other commitments, refer to Notes 5, “Leases,” and 6, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP.

We believe that the following accounting policies involve a high degree of judgment and complexity. These are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations. See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

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Revenue Recognition

Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

We determine revenue recognition through the following steps:

1.identification of the contract, or contracts, with a customer;

2.identification of the performance obligations in the contract;

3.determination of the transaction price;

4.allocation of the transaction price to the performance obligations in the contract; and

5.recognition of revenue when, or as, we satisfy a performance obligation.

We offer subscriptions to access our Connected Operations Cloud. Customers subscribe to one or more Applications on our Connected Operations Cloud which includes data that is primarily provided by various proprietary connected device access points, including telematic sensors, gateways, and cameras. Our Connected Operations Cloud and the related connected device access points are highly interdependent and interrelated, and represent a combined performance obligation, which is recognized over the related subscription period.

Determining whether the subscriptions to our Connected Operations Cloud and the connected device access points are considered distinct performance obligations that should be accounted for separately or as a combined performance obligation requires significant judgment. We determined that the subscription and connected device access points fulfill a single promise to the customer because the Connected Operations Cloud and connected devices are interdependent and interrelated to maintaining the intended utility of the subscription over the contractual term. In reaching this conclusion, we considered the context of the contract and the nature of our promise to provide the customer with actionable real-time business insights to manage their operations. Specifically, our connected devices, including the embedded proprietary firmware, are updated continuously by our Connected Operations Cloud using artificial intelligence (“AI”) and machine learning models to improve the capture, aggregation, and enrichment of data by the connected devices. Additionally, our Connected Operations Cloud then utilizes this data to deliver actionable real-time business insights that are promised to our customers throughout the term of their subscription to Applications on the Connected Operations Cloud. As a result of the highly interdependent and interrelated nature of the integrated service provided, these arrangements are accounted for as a combined performance obligation to the customer.

The combined performance obligation is satisfied over time, as we continually provide access to and fulfill our obligation to the customer over the subscription term. Accordingly, the fixed consideration related to the combined performance obligation is recognized on a straight-line basis over the contract term, beginning on the date that access to the Connected Operations Cloud or specified application and connected device is provided.

Our subscription contracts generally are non-cancelable and non-refundable, transfer title to the connected device to the customer upon shipment, provide access to the platform for a contractual term of three to five years, and are invoiced monthly, quarterly, annually, or in advance.

Connected Device Costs

We capitalize connected device costs associated with subscription contracts as contract fulfillment costs where the connected device is not distinct from other undelivered obligations in the customer contract. These costs are directly related to customer contracts and are expected to be recoverable and enhance the resources used to satisfy the undelivered performance obligations in those contracts. These contract fulfillment costs are amortized over a period of benefit of five years. Determining the period of benefit requires judgment for which we take into consideration the expected life of the connected device, the connected device’s warranty period, past experience with customers, the duration of our relationships with our customers, and other available information.

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Deferred Commissions

Sales commissions paid to our sales force and the related payroll taxes, as well as commissions paid to referral partners, are considered incremental and recoverable costs of obtaining a contract with a customer. We evaluate whether costs should be deferred based on sales compensation plans and if the commissions are incremental and would not have been incurred absent the execution of the customer contract. As a result of changes to the Company’s sales compensation strategies during the fiscal year ended January 30, 2021, the sales commissions paid on the initial and renewal contracts were no longer commensurate and we therefore began to amortize sales commissions paid on the initial contract over an expected period of benefit, which we have determined to be approximately five years. Determining the period of benefit including renewal term and renewal rate requires judgment for which we take into consideration our customer contracts and the duration of our relationships with our customers and the life of our technology. Commissions paid upon the renewal of a contract are amortized as expense ratably over the renewal term.

Prior to the changes in sales compensation strategies, the sales commissions for renewals of customer contracts were commensurate with the commission paid for the acquisition of the initial contract. Accordingly, commissions paid on both initial contracts and renewals were amortized as expense ratably over the term of the non-cancelable initial or renewed customer contract to which they related, in proportion to the pattern of recognition of the related revenue.

Stock-Based Compensation

We measure compensation expense for all stock-based awards based on the estimated fair values on the date of grant. Our stock-based awards include stock options and RSUs. The fair value of employee stock options is determined using the Black-Scholes option-pricing model using various inputs, including the fair value of our common stock, estimates of expected volatility, term, risk-free rate, and future dividends. We recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years.

The fair value of RSUs granted after our IPO is based on the closing price of our Class A common stock on the date of grant. The fair value of RSUs granted prior to our IPO is determined at the grant date by our Board of Directors. Our RSUs have a service condition and RSUs granted prior to our IPO were also subject to a liquidity event vesting condition, which was satisfied on the completion of our IPO. For RSUs granted after our IPO, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years. Following the closing of our IPO in December 2021, we began recording stock-based compensation expense for RSUs with a performance condition using the accelerated attribution method, based on the grant-date fair value of the RSUs.

Common Stock Valuations

Prior to our IPO, given the absence of a public trading market for our common stock and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our Board of Directors determined the best estimate of fair value of our common stock exercising reasonable judgment and considering numerous objective and subjective factors. These factors included:

•contemporaneous valuations of our common stock performed by independent third-party specialists;

•the prices, rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

•the prices of common or preferred stock sold to third-party investors by us and in secondary transactions or repurchased by us;

•lack of marketability of our common stock;

•our actual operating and financial performance;

•current business conditions and projections;

•hiring of key personnel and the experience of our management;

•the history of the company and the introduction of new products;

•our stage of development;

•likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition of our company given prevailing market conditions;

•the market performance of comparable publicly traded companies; and

•the U.S. and global capital market conditions.

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In valuing our common stock, the enterprise value of our business was determined using various valuation approaches. Application of these approaches involved the use of estimates, judgments and assumptions that are highly complex and subjective. Changes in any or all of these estimates and assumptions or the relationships between those assumptions would have impacted our valuations as of each valuation date and may have had a material impact on the valuation of our common stock.

After the completion of the IPO, the fair value of our Class A common stock is determined based on the New York Stock Exchange closing price on the date of grant.

JOBS Act Accounting Election

We meet the definition of an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. Pursuant to Section 107 of the JOBS Act, we have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.